In 2010, the company achieved operating income of 2.78 billion yuan, an increase of 22.67% over the same period last year, and net profit of 33.83 million, an increase of 213.7% over the same period last year. The substantial increase in performance is mainly due to the significant increase in production, sales and profits of the leading product BDO.

In 2010, the price of BDO including tax increased by more than 50% compared with the same period last year. The gross profit margin of the company's BDO series products reached 23.4%, an increase of 8.8% over the same period last year, and production and sales increased by nearly 20%. In 2011, the profitability of BDO is still expanding. We expect the gross profit margin of BDO to rise to 35-40%, with a gross margin of about 6000 yuan per ton per ton. Downstream PTMEG, THF, GBL and other products basically maintain a break-even.

In 2010, the company's management expense rate and operating expense rate were 5.41% and 2.58% respectively, down 1.8 and 0.76 percentage points from 2009, reflecting the improvement of the company's management efficiency. From 2011 to 2012, with the production of 75000 tons of maleic anhydride BDO, 30, 000 tons of PTMEG and 30, 000 tons of latex, the company's operating income will increase significantly, and the proportion of corresponding expenses will continue to decline.

In 2011, the company's operating cash flow increased by 219% compared with 2009, reflecting the improvement of the profitability of the company's leading products; the cash flow of the company's investment activities increased by 366% compared with 2009, all due to the investment of the company's fixed assets. The substantial increase in capital expenditure reflects the company's thinking of substantial expansion, and new projects such as BDO, PTMEG, latex and coke will gradually reflect benefits in 2010-2012.

In 2011, Henan Kaixiang 45000 tons of calcium carbide BDO, Blue Star 55000 tons of maleic anhydride BDO production capacity can only be gradually put into production at the end of the year at the earliest, there is no new capacity put into production in peak season, and the profitability of the industry will be significantly better than in 2010. At present, the proportion of BDO of calcium carbide method is only 50%, and the pricing is still based on maleic anhydride method, so the rise in oil price directly drives up the price of BDO, and calcium carbide BDO fully benefits.

In 2012, the production of spandex downstream of PTMEG will be expanded by nearly 25%, which will drive the downstream demand of PTMEG. Domestic PTMEG expansion in the past two years is less, only Shanxi 3D's 30,000 tons of production capacity will be put into production by the end of 2011, the relationship between supply and demand of PTMEG will be good, and PTMEG profitability will pick up from 2011 to 2013.

We estimate that the EPS from 2011 to 2013 will be 0.57,0.95,1.24 yuan respectively. For every 1000 yuan / ton increase in BDO prices, EPS will be thickened by 0.1 yuan. The current share price is 21.9x, 13.2 times and 10.1 times PE from 2011 to 2013, respectively, maintaining the company's "overweight" rating.

Risk hint: the textile and electronics industries are depressed and international oil prices are plummeting.